Prosper Relaunches, Becomes Prosper Loans Marketplace

By Sun

Prosper, once the largest operator of peer-to-peer lending until it shut down its operation in October 2008 amid regulatory scrutiny, has relaunched yesterday and now it’s called Prosper Loans Marketplace, with a twist on how to lend and borrow. However, since the Prosper is still in the process of completing registration with the Security and Exchange Commission, only residents of California are currently allowed to lend money through its platform, though everyb0dy can apply for a loan. Lending Club, another major player in the P2P lending business, is the only P2P lending operator which complies with SEC rules.

What have been added to Prosper are new ways to invest with Prosper. In addition to direct P2P lending, which has been the cornerstone of Prosper’s operation, the new Prosper now offers an Open Market Listing that allows financial institutions to list loans, such as auto loans, small business loans, or social impact loans, and sell them to potential individual investors.

Open Market listings describe the existing Open Market loan, owned by the loan seller, which is offered for sale on the Prosper marketplace. Each listing displays information to assist the lender in making an informed bidding decision. Lenders can review the sale price for the Open Market loan, the yield percentage that corresponds to the sales price, the remaining principal balance of the loan and the interest rate the borrower is obligated to pay on the loan.

From the above description, the new Open Market is more like Lending Club’s Note Trading Platform, where investors, especially those who are unable to participate direct P2P lending, like myself, can buy and sell loans. In this case, the loans are from financial institutions instead of individual loan sellers. The benefit of having financial institutions join and participate in the Open Market is that potential investors will have a wider range of loans to choose from. Whether investors can get good returns from buying those loans, however, depends on how the loans are prices, not the types of loans, as noted in the Wall Street Journal article yesterday. From my experience with Lending Club, there are many lenders sell loans with big markups (some as high as 10%) and I always stay away from those high-price loans. I’d apply the same rule if I ever invest with Prosper. As we know, large companies usually have large overhead and that could be priced into the loans they sell to small investors. If that turns out to be the case, then I don’t think many investors will get excited about it.

In addition to the Open Market, Prosper is also preparing a secondary market, like exactly the one Lending Club has, where lenders can trade loans. I will definitely take a look at this when it becomes available.

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